The announcement was big news for the local economy in Dorchester County and for South Carolina’s political leaders.
Showa Denko Carbon, a manufacturer of electrodes used in the steelmaking process, decided in 2011 that it would expand its factory on the outskirts of Ridgeville and increase its production capacity by 68 percent.
Local officials and Nikki Haley, who was in her first term as governor at the time, filled the Dorchester County Council chamber to praise the company’s growing relationship with Palmetto State.
The SC Department of Commerce at this point agreed to give Showa Denko a $ 2 million grant in exchange for the company investing at least $ 200 million in its factory and adding another 100 workers to its payroll.
“When a company expands in South Carolina, it is a celebration, because it is a commitment,” said Haley at the event.
The scholarship that Showa Denko received was certainly a commitment. The company signed a contract with the state to get this money.
However, more than 10 years later, it was revealed that the company did not keep all the promises it made to South Carolina.
Newly released records show that trade officials have allowed Showa Denko, and several dozen other companies, to retain state funding, even after failing to meet all agreed labor and investment requirements.
The Commerce Department released information about these deals last month in an effort to appease state lawmakers who complained about the lack of transparency at the agency, which is responsible for recruiting new businesses for South Carolina.
But if state trade officials expected the information to satisfy their critics, it didn’t work.
Instead, it rekindled the efforts of two lawmakers to increase the agency’s oversight and further clarify the millions of dollars in subsidies and tax incentives that state officials provide businesses with each year.
Senator Dick Harpootlian, D-Columbia, and Senator Wes Climer, R-Rock Hill, said the grant to Showa Denko is a good example of why lawmakers need to make these deals more transparent and accessible to the public.
Showa Denko completed the expansion of its factory in 2014 and exceeded the required investment of $ 200 million. But records show that the company created less than half of the jobs it was required to produce within the deadline stipulated in its contract.
As a result, trade officials could have recovered a quarter of the money the state spent to help the company expand. But they never did.
Instead, state officials quietly resolved the issue with the firm’s lawyers in 2016. In doing so, they determined that Showa Denko executives made a “good faith effort” and allowed the company to keep half a million dollars in cash of the taxpayer that could have been returned to the state.
Erik Doerring, a lawyer who represented Showa Denko in these negotiations, said the state allowed the company to maintain the financing because it invested an extra $ 140 million in its project. He said the subsidy financing was instrumental in the expansion and emphasized that the business has created jobs since then.
The electrode manufacturer was not the only company that failed to comply with the terms of its contract. According to Department of Commerce records, similar situations have occurred with companies that have opened stores across South Carolina.
A recycling company in Florence County, for example, did not create any jobs after promising 25 new jobs, but managed to retain all of the $ 55,000 subsidy it received from the state.
In Clarendon County, a start-up company that made floor pillows created 60 of the 100 jobs it promised. But he was never forced to return part of his $ 150,000 donation.
And a company that makes electric buses in Greenville County has promised to expand its workforce to 400 people, but has hired just 297 people. Even so, it managed to retain the entire $ 1.5 million donation it negotiated with the state.
Alex Clark, a Commerce Department spokesman, said that each of these decisions was made on a case-by-case basis, after considering the “broader economic development environment”.
Commerce officials, she said, assess a number of factors: whether there were problems beyond the company’s control, whether the company had difficulty finding skilled workers and whether the company was located in a rural county where it is more difficult to recruit employers.
The state, added Clark, “never just allows a company to underperform.”
Harpootlian questioned whether state officials would have allowed companies to keep the money if the process was more transparent and these decisions were openly debated and voted on at a public meeting.
“The concern here is that there are people who did not do what they said they were going to do and there is no sanction for that,” said Harpootlian. “These are contracts. In the business world, you can’t keep the money when you can’t meet deadlines.”
Proactive steps
Many of the incentives for economic development that the Department of Commerce has distributed to companies have existed for decades. But only recently have these businesses come under scrutiny.
State Fiscal Council officials finalized a report last year on the largest tax subsidy and incentive programs overseen by the agency.
The auditors analyzed more than $ 526 million in grants that the state distributed to companies from 2009 to 2019, and they tested some of the tax incentives that made hundreds of companies eligible to maintain a total of $ 6.2 billion in state tax revenue. .
The final report criticized the lack of transparency surrounding these economic development packages, and the conclusions raised questions about the state oversight of companies that receive these lucrative contracts. He also mentioned extensively how the state has refused to recover at least $ 7.6 million from companies that have failed to fulfill all of their obligations under their contracts.
The Commerce Department at the time acknowledged the findings, but reacted against the report. In a letter, Commerce Secretary Bobby Hitt pointed out that the vast majority of businesses his team set up generated the promised jobs and investments.
The agency also emphasized the importance of incentive packages in attracting large corporations to South Carolina. This includes large companies such as Boeing, Volvo, BMW, Bridgestone, Mercedes-Benz and Michelin.
Harpootlian and Climer recognize the industries and economic growth that tax concessions and incentives helped to generate. But they question why the details of these economic development deals remain hidden.
The Commerce Department, they said, does a great job of announcing when companies choose to settle or expand in South Carolina. The agency also likes to announce how many jobs these companies are expected to create.
But the follow-up is not there, said Climer. There is no easy or accessible way for taxpayers to know how much each individual company can raise from the state through subsidies and tax incentives, he said.
And, before last month, the Commerce Department never voluntarily revealed which companies fell short of their job creation and investment goals.
Clark, the agency’s spokeswoman, said the list of companies that had failed to meet their donation obligations in the past decade was provided as a “proactive measure”.
This disclosure, said Clark, was aimed at better informing South Carolina residents about the state’s economic development activities. The agency also created a new web page where some basic information about each economic development business can be found.
These concessions are a start, said Harpootlian, but he and Climer plan to make major changes in an effort to make the agency more accountable to taxpayers.
“The public has a right to know how their money is being spent,” said Harpootlian. “There will be more transparency.”
A rubber stamp?
The two lawmakers are taking a disperse approach in their attempt to reform South Carolina’s economic development system.
They want to demand that the Commerce Department, for the first time, disclose exactly how much each company is receiving through concessions and tax incentive agreements each year.
They plan to increase the number of dedicated auditors at the SC Revenue Secretariat who oversee companies that receive state tax incentives.
Harpootlian, who sued the Commerce Department over a 2019 Freedom of Information Act request, also sponsored legislation that would limit information and documents that the agency can protect from the public under state law.
The biggest change that the two legislators are promoting concerns the SC Economic Coordination Council. Most people have probably never heard of this group, but it is arguably one of the most powerful government agencies in South Carolina.
The council is made up of directors from 11 state agencies and the body is chaired by the South Carolina secretary of commerce.
Its main objective is to sign the agreements that trade officials negotiate with companies. The group makes all of these decisions behind closed doors in an executive session to protect the identity of the companies with which the state is doing business.
It is this secrecy and loose responsibility that concerns Climer and Harpootlian.
They can understand the need to discuss potential deals privately before they are finalized. But state lawmakers question whether the board thinks for itself or whether it is just a “rubber stamp” for the Department of Commerce.
An unidentified member of the coordinating council told legislative auditors last year that they could not remember a time when a company applied for a tax concession or reduction and was rejected by the council.
This shows that there is no control over the Department of Commerce, said Climer.
To try to correct this, Climer wants to add four state legislators to the coordinating council. The hope, he said, is that these new members will bring some transparency to the board and make it more accountable to taxpayers.
The only current councilor elected by voters, said Climer, is the secretary of agriculture. All other members of the body are appointed politicians.
Climer and Harpootlian also want to remove the board’s ability to forgive companies that fail to comply with their contracts.
It was the coordinating council that finally allowed Showa Denko and the other companies to keep state money after they did not fully comply with their commitments.
This must end, said Climer. He will ask lawmakers to transfer this power to the state’s Fiscal Responsibility Authority.
“You will no longer have the fox guarding the henhouse,” said Climer.